Year End Tax Compliance For Non Resident Indians (NRI)

Year End Tax Compliance For NRI

In the current era, almost every Indian wants to go in foreign countries for the job or business and once they settled there, they will become the resident of that foreign country and pay taxes in that country. When a person starts residing in the country other than Indian than as per the income tax Act – 1961, at the year-end he may be

  • Resident and ordinarily resident; or
  • Resident and not ordinarily resident;
  • Non Resident

Income tax act, 1961 has defined the taxability of all the person as per their residential status which is as follows:

Source of the Income Taxability in India
Resident and ordinarily resident Resident and not ordinarily resident Non Resident
Income received or deemed to be received in India P P P
Income accrue or arise or deemed to accrue or arise in India P P P
Income accrues or arises to him or received outside India from
a business controlled from India; or
profession setup in India
Income accrue or arises or received outside India P O O

In this article, we will discuss all the compliance that NRI have to follow for the income taxed in India, so before going further, first it is necessary to understand when a person is called Resident and ordinarily resident or resident and not ordinarily resident or Non Resident.

Resident and Ordinarily resident: A person who is a resident, would have the global income taxable in India.  

Resident but not ordinarily resident: A person who is a resident Indian and has a non-resident for 9 out of 10 in the preceding relevant financial year or has been in India for the period less than 729 days during the 7 years preceding to the relevant financial year.

Non-Resident: A person is called a non-resident if he stays in India for less than 60 days during the relevant financial year. Although if the person leaves India for the purpose of employment outside India then this period shall be increased to 182 days for that particular financial year.

Now, let us discuss some of the cases in which the Non-resident income shall be taxable in India:

  • Salary Income: If a person is receiving salary from the employment which is exercised in India then such salary income shall be taxable in India.
  • Rental Income: Any rental income to the Non- resident of the property situated in India, shall be taxable in the hands of such Non Resident in India.
  • Professional or Business Income: The income of the profession and business shall be taxable in India if such business or profession is carried on India through a fixed base in India.
  • Capital Gains: This is very important case, because if the person has earned a capital gain on the transfer of a capital asset situated in India then irrespective of his residential status, the income of such person shall be taxable in India.

Exemptions or deductions allowable to NRI :

If the NRI’s income is being taxable in India, then there are some sections are also defined which provides the exemptions or deduction to him. For example

section 80 C provides the deduction of Rs.1.5 lakhs if the assessee has made certain investments as specified in that section. Or section 80D provides the deduction of insurance premiums of all individuals and HUF including non-resident individuals.
Similarly, if the Non-Resident has earned the income from the sale of an immovable property then he has the option to claim the exemption of such capital gain by depositing it in a certain scheme as defined in section 54 or 54F or 54EC.

Tax Deduction at Source :

Where the Non-resident has earned the income like interest or rent or capital gain then such income shall be subject to the TDS under section 195. That means, the buyer shall be required to deduct the TDS on the payment and paid the net payment to NRI, so it is advisable for the NRI to take form 16/16A from the buyer to claim the deduction.

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